Inevitable Disclosure: Who Really Owns Your Brain?

Conceptually, there is something disturbing about creating a rule out of thin air that an employer loading its information onto my hard drive means that the employer owns my hard drive. Why not the other way around? And of course, the hard drive in this case is really someone’s brain. The inevitable disclosure meme has not reached pandemic levels just yet but it threatens to take your brain from you. (See previous post for introduction.) However, to understand how the common law has evolved to the point that it is a question as to who owns your brain, it is important to understand the environment in which inevitable disclosure first appeared. The first case to rely on the inevitable disclosure doctrine was PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir.1995), which is discussed below.

FACTS

At the outset of its opinion in PepsiCo, Inc. v. Redmond, the Seventh Circuit noted that this case must be viewed against “the backdrop of a fierce beverage-industry competition between Quaker and PepsiCo, especially in ‘sports drinks’ and ‘new age drinks.’” (It seems that the more competitive an industry is the more courts think protection against competition is justified. )

William Redmond, Jr., began working worked for PepsiCo in its Pepsi-Cola North America division (“PCNA”) in 1984. Redmond became General Manager of the Northern California Business Unit in June 1993, and was promoted a year later to General Manager for all of California, a business unit having annual revenues of more than $500 million, which represented 20% of PCNA’s profit for the entire U.S.

Redmond’s job gave him access to inside information and trade secrets. Redmond, like other PepsiCo management employees, had signed a confidentiality agreement with PepsiCo. The agreement stated in relevant part that he:

w[ould] not disclose at any time, to anyone other than officers or employees of [PepsiCo], or make use of, confidential information relating to the business of [PepsiCo] … obtained while in the employ of [PepsiCo], which shall not be generally known or available to the public or recognized as standard practices.

Donald Uzzi, who had left PepsiCo in the beginning of 1994 to become the head of Quaker’s Gatorade division, began courting Redmond for Quaker in May, 1994. The discussions and negotiations continued for about 6 months and eventually resulted in Quaker offering Redmond the position of Vice President-Field Operations for Gatorade. Redmond accepted on November 8, 1994.

Redmond did not disclose his discussions to PepsiCo until November 8 and he misrepresented the position he had been offered and advised that he was “60/40” leaning toward accepting the position. It was not until November 10, that Redmond advised PepsiCo that he had accepted Quaker’s offer, although he once again misrepresented the position he had accepted. Pepsico sued.

LAW

PepsiCo’s lawsuit against Redmond and Quaker seeking to prevent Redmond from assuming his duties with Quaker and from using trade secrets. PepsiCo presented evidence that Redmond had extensive knowledge regarding its “Strategic Plan” its “Annual Operating Plan” and its “pricing architecture” for 1995. Even though Redmond did not have a non-compete, PepsiCo “argued that Redmond would inevitably disclose that information to Quaker in his new position, at which he would have substantial input as to Gatorade and Snapple pricing, costs, margins, distribution systems, products, packaging and marketing, and could give Quaker an unfair advantage in its upcoming skirmishes with PepsiCo.” The District Court agreed and granted an injunction preventing Redmond from working for Quaker.

The Seventh Circuit Court of Appeals agreed. In upholding the injunction the court stated:

[T]he danger of misappropriation in the present case is not that Quaker threatens to use PCNA’s secrets to create distribution systems or co-opt PCNA’s advertising and marketing ideas. Rather, PepsiCo believes that Quaker, unfairly armed with knowledge of PCNA’s plans, will be able to anticipate its distribution, packaging, pricing, and marketing moves. Redmond and Quaker even concede that Redmond might be faced with a decision that could be influenced by certain confidential information that he obtained while at PepsiCo. In other words, PepsiCo finds itself in the position of a coach, one of whose players has left, playbook in hand, to join the opposing team before the big game. Quaker and Redmond’s protestations that their distribution systems and plans are entirely different from PCNA’s are thus not really responsive.

BRIEF ANALYSIS

Well, this is not like a player who switches teams right before a big game, since there is no “big game.” However, players change teams all the time from one season to the next, and teams just deal with it. Of course, to prevent a player from leaving right before a “big game” teams sign players to yearly or multi-year contracts, and players with contracts for a term cannot just leave. So, perhaps Pepsico should have signed its star player to a long-term contract. Maybe it is Pepsico’s on damn fault. And just like a team who loses a player in the offseason, the teams still must line up on the field and play the game. Even if Packers know the Cardinals are going to throw the ball on almost every down, the Packers still have to have to stop the Cardinals from executing. (Something they could not do last weekend.)

However, it would be a mistake to simply view inevitable disclosure in isolation from the other common law doctrines that underpin the employment relationship. More to the point, employees can theoretically leave on the night before a big game because chambers of commerce have fought vigorously to maintain the supremacy of employment at will. Seen in this larger context, inevitable disclosure is just one more court created impediment to employee bargaining power. The next post will examine the legal environment in which this new employment law meme has appeared.